The use of non-disclosure agreements in discrimination cases Contents

5Compliance and enforcement

A perennial problem - the enforcement gap

113.We have previously highlighted serious concerns about the lack of enforcement in relation to poor employer practice on pregnancy and maternity discrimination and sexual harassment in the workplace.160 As we warned in our 2016 Report on Pregnancy and maternity discrimination, the very low numbers of women taking action against employers for pregnancy and maternity discrimination leaves an enforcement gap, because this type of action is the main source of enforcement for discrimination law. This enforcement gap leaves it open to employers to flout the law. We therefore called on the Government to “ensure that pregnancy and maternity discrimination laws and protections are better enforced”.161 Sadly, we have heard many of the enforcement issues that we identified in that Report repeated in the evidence we have taken for this inquiry.

114.In our 2018 Report on Sexual harassment in the workplace, we called on the Government to establish a regime to ensure that tackling sexual harassment is given as much attention by employers as money laundering and data protection—for example by requiring employers to take proactive steps to tackle and prevent sexual harassment and by giving the EHRC greater powers to investigate and sanction employers that do not take appropriate action to protect employees from such discrimination. 162

115.During this inquiry, we have heard evidence from public sector employers that have been taking steps to reduce their use of NDAs and ensure that they are used appropriately. For example, the civil service has significantly reduced its use of NDAs in settlement agreements since the introduction of Cabinet Office guidance in 2015.163 Brighton and Hove City Council has implemented a number of safeguards around its use of NDAs, including the “creation of a Compensation Panel of Senior Officers (Head of Finance, Head of Legal and Head of HR) which is required to review and approve any proposed settlement agreement”, criteria for assessing whether an NDA is required in each case; reporting of all NDAs to the council’s chief executive; and, in specified circumstances, approval by elected members. The council stated that it also “meets the legal expenses of the employee in every case (up to a set figure) to ensure that employees always receive independent legal advice in relation to the terms of the proposed settlement agreement”, and that it conducts equalities assessments of the impact of entering into settlement agreements.164

116.While we were encouraged to hear about good practice and positive change by some employers, we were disappointed to hear stories in the news throughout this inquiry about both public and private employers, including large companies, that appeared to be failing to deal with discrimination, and in some cases had repeatedly used NDAs to settle discrimination claims.165 For example, a recent news report by Tortoise Media has highlighted the widespread use of NDAs by the NHS and local authorities, and the amount of public money paid out as part of those NDAs, in the past five years. The article stated that 359,000 people have signed NDAs with local authorities in return for compensation of £190m since 2014, with one authority—Stoke-on-Trent City Council—signing 946 and paying out nearly £22m in that five-year period. It also states that “NHS England, the UK’s largest employer has agreed 1,072 NDAs for departures of staff that were not compulsory redundancies at a cost of £49.6m since 2014”, whereas NHS Scotland, which has a much smaller workforce, “signed a comparatively low 71 NDAs at a cost of £1.1m.” Most worryingly, it includes testimony from former NHS employers who describe being asked—or feeling pressured—to sign an NDA when they raised serious safety concerns.166

117.It is disappointing that some organisations continue to use NDAs to suppress allegations about improper behaviour. However, these cases are also unsurprising given the enforcement gap we have previously highlighted. We are encouraged by recent reports that the Government plan to end the use of NDAs in the NHS for whistleblowers, but the fact that NDAs are being used in such cases highlights the inadequacy of current protections to prevent this. 167

The role of regulators

118.The key regulator with responsibilities relating to the use of NDAs is the Solicitors Regulation Authority (SRA), which regulates the legal practitioners who draft and advise on NDAs. The main action that the Solicitors Regulation Authority (SRA) has taken in this area has been to publish its March 2018 Warning Notice on Use of non-disclosure agreements (NDAs).168 The notice reminds legal practitioners of their ethical obligations and sets out some of the practices around the use of NDAs that could lead to disciplinary action. These include using NDAs to “impede or deter, a person from: reporting misconduct, or a serious breach of our regulatory requirements” or from “making a protected disclosure under the Public Interest Disclosure Act 1998”, as well as using “inappropriate or disproportionate threats”. Since then, we have received evidence that the warning notice and reporting in the wake of the #MeToo movement and our own Report of 2018 has raised awareness among legal practitioners about the ethical use of NDAs in settlement agreements, and that there has been some change in approach, with attempts to insert more egregious clauses becoming less common. Employment lawyer Jane Mann told us:

So far as our own profession is concerned, the SRA issuing the warning notice, which is clarification of existing guidance and rules to solicitors, has, I believe, focused minds on what is appropriate and not appropriate in the negotiation and drafting of these types of settlement agreements and the behaviour of solicitors in relation to these negotiations. I think there is a sea change at the moment, not just in our profession in the way our regulator and we ourselves look at it, but across the business world and across society.169

119.Professor Richard Moorhead has suggested that the SRA could do more in this area, by further clarifying its guidance and, crucially, taking action to enforce it. He told us:

The key issue is enforcement. We need to see the SRA enforcing against solicitors who have breached the rules.170

However, the SRA told us that it had received only “19 reports since late 2017 about the inappropriate use of NDAs”, so its enforcement action on NDAs is currently limited.171

120.Another regulator with responsibilities in this area is the Bar Standards Board (BSB), which regulates barristers, who may be involved in drafting or advising on NDAs. In February, the BSB informed us of its decision that formal regulatory guidance on NDAs is “neither necessary nor appropriate” because the conduct of barristers is already covered by the BSB handbook and code of conduct and because it is for Parliament to legislate on whether the use of NDAs should be restricted or made unlawful, and that it is “not for the BSB, as a regulator, to perform that role.” Professor Moorhead called this decision “regrettable” and suggested that it should be revisited. He also outlined his concerns about guidance produced by the Law Society on this issue, describing it as “a disappointing document, that shows no ethical leadership in the field” and suggesting that it too should be revisited. We agree that the Law Society’s guidance on NDAs needs revisiting.

121.Regulators of members of the legal profession must make it clear to those they regulate that they will take rigorous enforcement action in this area if they become aware of actions and behaviours that do not meet the high ethical standards expected of legal professionals. This should be set out in guidance and followed up by appropriate action.

122.The Equality and Human Rights Commission (EHRC), which is tasked with eliminating unlawful discrimination, carries out enforcement work in relation to discrimination and harassment, but has a limited role to play in the use of NDAs. Its chief executive, Rebecca Hilsenrath told us:

[W]e tackle non-disclosure agreements as features of discrimination when carrying out enforcement work. [ … ]. An NDA is not in itself an unlawful act, so it is not something that, as a stand-alone issue, we can take enforcement action against.172

123.Matthew Smith of the EHRC explained how the EHRC’s powers to make employers take action on discrimination and harassment could be greatly enhanced if the Government were to place a mandatory duty on employers to take reasonable steps to protect workers from harassment and victimisation in the workplace—something that the EHRC has previously called for and that we called for in our 2018 report.173 He stated:

The key to a mandatory duty is that it will create an unlawful act that will allow us to make use of our enforcement powers. At the moment, in order to trigger our enforcement powers we would be reliant on an individual bringing a particular case of sexual harassment to us, and they would then have to relive the experience, give witness evidence and so on. A mandatory duty would enable employees to come to us at an earlier stage and say, “Our employer does not have the relevant practices, policies and procedures in place to comply with the mandatory duty.174

Rebecca Hilsenrath went on to explain that the EHRC was already drafting a code of practice on sexual harassment and harassment at work, which she expected it to publish in July.175 The code will specify the steps that employers should take to prevent and respond to sexual harassment. It also includes guidance on the use of NDAs in such cases. The code had been intended to support the duty we recommended. However, the Government has agreed to take forward only the code and not the duty at this stage, arguing that the code may have the same impact as the duty.176

124.Effective enforcement of workplace protections requires a careful balance of encouraging compliance and delivering enforcement. The evidence is clear that currently there simply is not enough enforcement in the mix. We have repeatedly highlighted the lack of regulation and dearth of meaningful sanctions around employer action to protect workers from discrimination. The Government has failed to ensure that there is sufficient incentive to encourage employers to take appropriate action to tackle and prevent discrimination and to ensure that complaints about discriminatory behaviour are handled and, where appropriate, settled in a responsible way. As a result, the law as it stands is not working as Parliament intended it to in providing protection from unlawful discrimination and harassment.

125.We welcome the forthcoming introduction of a statutory code of practice on sexual harassment and harassment at work. The code will provide important guidance for employers, but we are sceptical as to how effective the code will be without a corresponding duty requiring employers to take appropriate action to tackle these issues. We repeat our previous recommendation from our 2018 Report that the Government should place a mandatory duty on employers to protect workers from harassment and victimisation in the workplace. Breach of the duty should be an unlawful act enforceable by the Commission and carrying substantial financial penalties. Consideration should also be given to whether the duty should be widened to cover any form of unlawful discrimination or harassment.

126.The Government should require employers to appoint:

127.Guidance from regulators and other trusted sources such as Acas must do more to highlight the responsibilities of lawyers, professionals and managers to “report up” to senior managers and boards any concerns they may have about systemic issues with culture and discrimination, or about repeated or especially worrying allegations of improper behaviour by a particular individual or in a particular business area. The SRA should consider drafting guidance for lawyers on reporting up within their own firm and their client organisations, including on how to balance this with their other professional obligations. EHRC, Acas and other guidance and codes of practice on the use of NDAs in discrimination and harassment cases should highlight the responsibilities of HR professionals and line managers to report such concerns to senior managers and board members.

128.We note that the Government has acknowledged the need for greater enforcement capability against employers for breaches of labour market non-compliance by appointing Sir David Metcalf as Director of Labour Enforcement and by proposing a consultation on a new single labour market enforcement body. It has not set out how his work will interact with that of the EHRC. We welcome the appointment of Sir David Metcalf as Director of Labour Enforcement and the proposed consultation on a new single labour market enforcement body. We will consider further in our Enforcing the Equality Act inquiry how this work could interact with that of the EHRC on enforcing employers’ actions to protect workers from discrimination and harassment.

Suggestions on requiring employers to report on NDA numbers

129.Several witnesses suggested that employers should be required to report annually on the number of NDAs they agreed.177 Others suggested that this could turn into a box-ticking exercise and that the figures might not provide very useful information.178 Certainly, our experience of collecting data from employers on their usage of NDAs in recent years was that employers used different definitions of what was an NDA or confidentiality clause and so the figures were not necessarily comparable. We can see a use for such figures, provided that there is also some oversight of employers’ use of NDAs, but also see the potential limitations of taking a solely quantitative approach to overseeing the use of NDAs by employers in discrimination cases. Some witnesses suggested that it would be more useful to collect figures on the number of discrimination and harassment complaints or grievances lodged within the organisation each year.179 If organisations were required to collect such data they could be expected to have a better overview of potentially discriminatory practices internally.

130.We can see the potential merits of requiring employers to collect data, and potentially report, on the use of NDAs in settlement agreements, and on complaints and grievances about discrimination and harassment. However, we think it important to consider further how such data could be used, what kind of qualitative oversight could be provided and by whom, and any potential unintended consequences.

131.The Government should consider requiring employers to collect data and report annually on:

132.Talking specifically about pregnancy and maternity discrimination, Maternity Action and YESS suggested that reporting on maternity retention rates, rather than on the use of NDAs in pregnancy and maternity discrimination cases, would be the key measure that could help reduce pregnancy and maternity discrimination.180 Rosalind Bragg of Maternity Action told us:

[M]aternity retention rate reporting [ … ]is a very useful mechanism to be able to pick up bad practice. It picks up the bad practice that leads to compromise agreements and settlement agreements being signed, but it also picks up the bad practice that does not end up there; it picks up women who have left because they have found their workplace untenable but who have not taken action.181

We found support for this approach from employers, lawyers and others.182 Sarah Jones of the BBC and Anna Purchas of KPMG agreed that the most useful information would be the number of women still with employers a year after returning from maternity leave.183

133.We have already called on the Government to introduce employer reporting on maternity retention rates in our response to its recent consultation on pregnancy and maternity discrimination. We restate that call here.

Corporate responsibility

134.For public and private companies, oversight of their actions to tackle and prevent discrimination and harassment, and to ensure that NDAs are not being used inappropriately to mask such behaviour, rests largely with boards and shareholders. The UK corporate governance code, which is overseen by the Financial Reporting Council (FRC), provides some guidance in this area, but this does not apply to all companies. There is potential for poor and discriminatory practices to go unchallenged in companies in which those responsible for oversight lack awareness or concern about these issues. Tracy Vegro of the FRC told us that it is “not a legal requirement that NDAs and the sums of those NDAs are signed off by the board” and that currently boards would be unlikely to be aware of “every single” NDA. She added that recent changes and guidance to the corporate governance code suggested that “for the board to be asking about NDAs and the sums involved would be a good indicator of the underlying culture.”184

135.Several legal experts, employers, individuals and others agreed that boards should play a role in overseeing the use of NDAs.185 Jane Mann suggested that such oversight could form part of current corporate governance expectations, highlighting the potential for boards to receive reports relating to the use of NDAs, and to “steps to introduce culture change and to report on diversity and the management of claims and complaints internally”.186 Law firm Gowling WLG suggested taking a health and safety approach to harassment and discrimination, including by nominating someone to oversee risk, stating:

It may be appropriate to treat harassment or discrimination cases in a similar way to Health & Safety issues, with a risk profile on the board agenda as a duty to protect the health, safety and welfare of the employees. Harassment/discrimination could be considered in a similar way to safeguarding, requiring a person with oversight to monitor recurring issues and a risk register/ central repository to record agreements and complaints and identify patterns.187

Ben Wilmott of the CIPD suggested that the role of remuneration committees (RemCos), which are sub-committees of boards, could be expanded to include consideration of culture and the use of NDAs when making recommendations on executive pay, stating:

We have done some research that suggests the remit of the RemCo should be broader and should include issues around workplace culture. When decisions around senior remuneration are made, they should take into account issues of culture and whether or not there have been allegations or the use of confidentiality clauses for these sorts of issues.188

However, Sue Coe of the TUC warned that there was “some scepticism” among its members as to “whether internal transparency and reporting up to boards” would be effective enough to “drive the level of change and the level of reduction in confidentiality clauses that we have seen, for example, in the civil service.”189

136.Some companies told us that their boards or senior executives already had oversight of cultural issues, grievance-handling and the use of NDAs.190 Anna Purchas told us that KPMG monitors the number of settlement agreements that it uses and that the board receives regular updates “around staff leaving the firm”.191 Deloitte stated that relevant senior executives are provided with monthly anonymised reports “of all matters that our specialist ER team are managing in respect of our employees. This includes details of all complaints, mediations, grievances, disciplinary cases and any appeals.”192

137.We are convinced of the need for boards of public and private companies to take greater responsibility in overseeing their organisation’s use of NDAs in settling harassment and discrimination cases, as well as its action to tackle and prevent improper behaviour. Current corporate governance requirements simply do not go far enough to require companies to meet their responsibilities to protect employees from discrimination and harassment.

138.The Government must strengthen corporate governance requirements on all companies—public and private—to require them to meet their responsibilities to protect those they employ from discrimination and harassment. These should include:

139.The Government should strengthen regulation of companies’ adherence with their corporate governance responsibilities, including by ensuring that there are appropriate sanctions for poor practice.

160 Women and Equalities Committee, First Report of Session 2016–17, Pregnancy and maternity discrimination, HC 90

161 As above, para. 144

162 Women and Equalities Committee, Fifth Report of Session 2017–19, Sexual harassment in the workplace, HC725, para 133

163 Civil Service (NDA0084)

164 Brighton & Hove City Council (NDA0036)

168 Solicitors Regulation Authority, Warning notice - Use of non-disclosure agreements (NDAs), 12 March 2018

171 Solicitors Regulation Authority (NDA0076)

173 Women and Equalities Committee, Fifth Report of Session 2017–19, Sexual harassment in the workplace, HC725, para 32; and Equality and Human Rights Commission, Turning the Tables - Ending sexual harassment at work, 27 March 2018, para 1.1

176 Women and Equalities Committee, Seventh Special Report of Session 2017–19, Sexual harassment in the workplace: Government Response to the Committee’s Fifth Report of Session 2017–19, HC1801

177 Qq49–50; Q53 [Joeli Brearley, Emma Webster]; A member of the public (NDA0086); A member of the public (NDA0102); Zelda Perkins (NDA0080)

178 Q145 [Julie Morris, Jane Mann]; Mr Mark Anderson (NDA0035)

179 Q145 [Jane Mann, Julie Morris]; Q406 [Emma Codd]

180 Qq25; 41 and 49 [Rosalind Bragg, Emma Webster]; Maternity Action and YESS (NDA0005)

182 Q163 [Kiran Daurka; Baroness Kennedy; Jane Mann]; Q297 [John Rumney, Larissa Reed, Sarah Jones Anna Purchas]; Q347 [Sue Coe]

185 Prospect Trade Union (NDA0009); Equality and Human Rights Commission (NDA0011); Zelda Perkins (NDA0080); A member of the public (NDA0102)

187 Gowling WLG (NDA0012)

190 Q273 [Anna Purchas], Q397 [Emma Codd]; KPMG (NDA0064), Deloitte (NDA0068)

192 Deloitte (NDA0068)

Published: 11 June 2019